Mumbai: Hypermarkets will drive the next phase of growth at Reliance Retail Ltd as part of a new five-year business plan chalked out by the subsidiary of Reliance Industries Ltd, or RIL, under a new leadership team led by Gwyn Sundhagul, chief executive officer, value formats.
“We are still not good, but we are on the way to be better. We are fixing fundamentals at the moment,” said the 47-year-old expatriate from Thailand, who was hired last year to make a course correction at India’s second largest retailer by revenue.
Confident steps: Reliance Retail chief executive (value formats) Gwyn Sundhagul says the flurry of partnerships between Indian and global retailers does not bother him. Ashesh Shah/Mint
One of the first moves by Sundhagul was to implement a “jigsaw plan”, to ensure that the retail business would have the right location, the right format, the right offering, the right support service and the right infrastructure (which included the right supply chain, training and the right communication). He says he has also halved attrition and simplified processes.
In an initial burst of activity, Reliance Retail opened around 1,000 stores in 86 cities over three years, till it ran headlong into the economic slowdown and political turmoil caused by the retailer’s entry into states such as Uttar Pradesh and West Bengal. However, Sundhagul said, the firm opened 400 stores even during the slowdown.
Reliance Retail currently has stores in many formats, including small neighbourhood stores (Reliance Fresh), consumer goods (Reliance Digital) and clothing (Reliance Trends). It uses the Reliance Mart brand for its hypermarkets, large format stores that allow consumers to buy a range of goods under one roof.
The newly designed hypermarkets, which are currently being planned, will have floor space of at least 80,000 sq. ft, and the first one will be opened in Thane, in the outskirts of Mumbai, according to an internal company presentation.
Many other retailers are banking on hypermarkets, offering competition to Reliance.
“This is a strategy now being followed by other big retailers in India too,” said Pinakiranjan Mishra, partner and national leader of the retail and consumer products practice at Ernst and Young. He offered examples such as Aditya Birla Retail Ltd’s More, the Future Group’s Big Bazaar, Trent Ltd’s Star Bazaar, or the K Raheja Group’s HyperCity. “What will work in the long run is a combination of both (large and small format stores).”
However, Mishra added that larger formats come with “higher risks” because of the scale of investments and operations.
Sundhagul spoke to Mint on the sidelines of an internal meeting to share the five-year business plan with the senior leadership team and an annual business plan with the mid-management team in a hotel in suburban Mumbai.
Sundhagul was a prize catch for Reliance Retail. He has around 25 years experience in retailing, with his last assignment at Tesco Lotus, Thailand, where he led the scaling up of the retail business to a $5 billion (Rs23,000 crore) enterprise.
“We were looking at someone who had experience to scale up retail businesses in a similar environment,” a Reliance Retail official said. Initially, Sundhagul brushed away all approaches made by India’s largest private sector company, but finally a determined effort from a core RIL team succeeded in persuading him to visit India and see the Mukesh Ambani group’s operations in refining, petrochemicals and retailing. Sundhagul was impressed enough to take the bait, though he has not been joined in India by his wife Paveena and daughter Kasinaporn, who is a national ice skating champion.
The flurry of partnerships between Indian and global retailers does not bother him, said Sundhagul. The Future Group has a tie-up with Carrefour SA, Trent with Tesco and Bharti Retail Pvt. Ltd with Wal-Mart Stores Inc.
“We, too, have such associations,” he said in jest, as he explained how his new core management team has been hired from global retailers such as Tesco, Wal-Mart, Asda, the UK supermarket chains owned by Wal-Mart and European super market chain Morrison(Wm) Supermarkets Plc.
The old team at Reliance Retail has moved aside, with only Manoj Modi, a close aide of Mukesh Ambani, now involved in the management of the business.
The next two weeks will see Sundhagul make presentations to company teams across India.
Reliance Retail is still in the red, and Sundhagul evades a direct question on profitability by saying that some stores are already profitable.
Experts allude to the challenge of growing profitably. Anand Raghuraman, partner and director, The Boston Consulting Group, said, “Doing growth and profitability at the same time is tough. Controlled expansion with profitability could work. Currently, there is no national food and grocery retail firm that is profitable. Profitability for sector players is at least two to three years away.”
Sundhagul is aware of this predicament. He said that being with Reliance “doesn’t mean we spend all the money. The business model needs to be profitable. We need to grow in a calibrated manner”.